Energy

Insiders Are Backing Up the Truck to Buy These 4 Energy MLPs

Lee Jackson

Published: March 8, 2016 10:35 am

Last Updated: January 13, 2020 12:14 pm

One of the best indicators in any sector, during any kind of market conditions, is insider activity. When insiders and 10% owners are buying stock, they are often also giving their personal vote of confidence on a specific company. We cover insider buying and selling every week here at 24/7 Wall St., and needless to say, one of the sectors we have seen a tremendous amount of activity in, especially over the past six months, is energy.

A recent, very in-depth report from RBC focuses on insider buying in the energy master limited partnerships (MLPs), and some of the companies are seeing incredible buying, especially since the market was hammered again to start off 2016. We found four companies that have literally had millions of shares purchased by insiders. Some of the companies we have reported on in our weekly coverage of insider activity.

Crestwood Equity Partners

This company is the leader with a massive 5,004,372 shares of the stock having been purchased by insiders. Crestwood Equity Partners L.P. (NYSE: CEQP) owns and operates midstream businesses in multiple unconventional shale resource plays across the United States. Crestwood is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; the storage, transportation, terminaling and marketing of natural gas liquids; and the gathering, storage, terminaling and marketing of crude oil.

Crestwood pays a giant distribution, which many think it could be struggling to maintain. Even so, the insiders have continued to buy the stock at a frantic rate. With a fee-based generation of income, even with a dividend cut it is intriguing.

Crestwood investors receive a massive 68.0% dividend, or $1.375 per quarter. The Thomson/First Call consensus price target for the stock is $12.17. The shares closed Monday at $9.40, up over 16% on the day.

This company had a stunning 4,121,019 shares of stock bought by insiders, with Chairman Kelcy Warren buying millions of shares at the end of last year. Energy Transfer Equity L.P. (NYSE: ETE) provides diversified energy-related services in the Unites States. It owns and operates approximately 7,700 miles of natural gas transportation pipelines and three natural gas storage facilities located in the state of Texas, as well as approximately 12,800 miles of interstate natural gas pipeline. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users and other marketing companies.

The stock was hammered in February when the company announced that it was replacing its chief financial officer with that of Energy Transfer Partners. While it said that the change was not caused by a disagreement over accounting or financial matters, the move spooked the market and some Wall Street firms cut their ratings.

Investors receive a rich 13.80% distribution. The consensus price target is a whopping $28.50. Shares closed Monday at $8.26.

Summit Midstream

This company has seen a surge of buying since the first of the year by its top executives and by members of the board of directors. They have purchased 2,996,522 shares. Summit Midstream Partners L.P. (NYSE: SMLP) is a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States.

Summit Midstream currently provides natural gas, crude oil and produced water-gathering services pursuant to primarily long-term and fee-based gathering and processing agreements with customers and counterparties in four unconventional resource basins.

Investors are paid a 15.39% distribution. The consensus price objective is $18.50, and the shares closed Monday at $15.27.

Plains GP Holdings

This company has seen insiders buy a total of 2,193,954 shares. Plains G.P. Holdings L.P. (NYSE: PAGP) owns an interest in the general partner and incentive distribution rights of Plains All American Pipeline, one of the largest energy infrastructure and logistics companies in North America. Plains All American reported fourth-quarter and full-year 2015 results with adjusted EBITDA of $563 million and $2.17 billion, respectively, which were slightly below the low end of the guidance ranges the company issued last November.

The company realized $1.6 billion of proceeds from a recent preferred equity placement, which satisfies equity financing needs for 2016 and substantially all of 2017 and enables Plains All American to complete its multiyear, multi-billion dollar capital expansion program, while maintaining substantial liquidity and a solid balance sheet.

Shareholders are paid an 11.58% distribution. The $11.42 consensus price target is well above the $7.98 at which shares closed on Monday.

It’s is important for investors to remember that MLP distributions can contain return of capital. While insider buying in of itself is not a reason to go out and buy shares, it is a very solid indicator, and this kind of sizable purchasing is a good forward measure of confidence.